Risk Avoidance This entails attempting to avoid high-risk activities which could result in catastrophic impacts on personal finances. Speeding, extreme sports, or smoking are all examples of high-risk activities.
Risk Retention In this method, one assumes all the risk and chooses not to mitigate the risk at all. For example, forgoing long-term care insurance due to the belief there are enough assets and income to cover the costs should the need arise.
Risk Reduction Also known as loss prevention and control, this involves minimizing risk. For example, installing smoke alarms in your home can help reduce catastrophic loss. This, however, does not eliminate the need for insuring the asset.
Risk Sharing In this strategy, one assumes a limited degree of manageable risk and transfers the balance of risk to one or more organizations. Paying for medical insurance is a perfect example of risk sharing.
Risk Transfer As it sounds, completely transfer risk to a third party for consideration of an insurance premium. Life, disability, and liability risks are often transfered in this way.
“What ifs” are real, and they usually occur at the most inopportune times. Hoping these scenarios never happen is not a strategy. The type and extent of risk management planning, like other areas of wealth planning, depends on your current situation. Let’s get started!